A business capital advance is also popularly known as business cash advance. This type of loan works on the basis of your credit card. More than a loan, a business capital merchant cash advance can be better described as an advance of sorts.
You can have an advance of the amount you want, on a daily basis, with a merchant cash advance. With the help of a working capital advance, you will be sent a regularly funding on your business account.
A merchant cash advance can be said to be quite a new idea in the business world but due to its convenience and profits, it has already made a niche for itself among businessmen. Be it a retailer or some high end business, a business cash advance has proved to be quite favorable among all sections.
If your business is comparatively new and does not own a lot of assets, then the issuer of your merchant cash advance will look at the terminal of your card as the security and then lend you money. You can then repay the advance bit by bit, so that it does not cause a burden.
The repayments are also taken depending on the profits that you earn in your business. If you have good sales then you can easily payback the advance quite fast. If you have slow sales then paying back the advance will also take quite some time.
How can a business capital merchant cash advance be useful?
There are a lot of ways in which a business cash advance can be of use to you. Some of them are given below:
- For advertisement of your company
- Buying your inventory
- Meeting the short term financial needs
- Purchasing the necessary equipment
Why opt for a merchant cash advance?
If you apply for a merchant cash advance then your payments will get more flexible and will depend on the daily sales of your company. Getting a merchant cash advance approved is much easier than getting a bank loan.
This is because the whole process of applying is a lot faster and can be done online or even through a phone call. Within the span of just a few hours, your advance will be approved so that you can enjoy endless avenues for your company.
The best part about these advances is that it gives you extra credit. For instance, if you already have applied for funding from other sources but still lack some capital to handle the daily needs of your business, then a merchant cash advance will let you do that.
You might have taken a bank loan for buying equipment or infrastructure but you can also take a merchant cash advance to have some ready cash on your hands to handle the daily expenses.
What are the drawbacks of an advance?
Like they say that every coin has a flipside, a merchant cash advance has its other downside as well. You as a potential investor in merchant cash advance, need to be fully aware of the drawbacks as well. Here they are:
Your profit is the key
You cannot borrow any amount that you wish to borrow. The lender will let you borrow only as much as you make, meaning, that the amount you borrow, depends on your credit card sales. So, for instance, you want to borrow $6,000 but your turnover in a month is only $2,000, then you will not be granted the former advance.
Mostly suited for credit card transactions
If you carry on transactions in your business through a lot of ways, then a merchant cash advance may not be the ideal thing for you. This is the best for businesses that carry on most transactions via card. If you do bank transfers, send invoices, etc, then we suggest that you go for another finance choice that will be able to serve you in an apt way.
There are a lot of business capital merchant cash advance lenders who have only a handful of choices when it comes to terminal providers. You might have a different provider from theirs and this might get you in a fix. However, this is not to deny that there are a lot of merchant cash advance lenders who offer a lot of variety in providers.
How does business capital merchant cash advance work?
The sales that appear on your credit card will be the first thing that will be considered before your merchant cash advance is approved. This is done to judge if your business is capable of returning the advance within the stipulated time.
What happens is that, on taking a merchant cash advance, you agree to sell some of your future sales in exchange for funding that you can get instantly.
At the very outset, you will have to sign an agreement with your merchant advance working capital provider, where your advance amount, the amount to be paid each day, the percentage that will be held back, etc, all will be discussed.
The moment both parties give their consent to this agreement, the advance will be transferred to your business account on the condition that a percentage of receivables will be given to the lender in the future.
After this, every day the percentage that you agreed upon, will be held back from your credit card sales. This will go to your lender, as per the contract. This daily amount paid is termed as “holdback” and this will continue till the time the entire advance is paid off.
It is true that the rates that are charged on a merchant cash advance tend to be more than other conventional loans. But it is also true that the requirements of getting a merchant cash advance are a lot simpler than the requirements of getting a bank business loan.
Plus, you also need to have a lot of time on your hands to get a bank loan approved. This is not the case when it comes to your received funding. Before you actually decide on a merchant cash advance, we suggest that you read the terms and conditions well, so that you can make a though out choice before you go on to choose one.
Should I go for a business capital merchant cash advance?
If your business requires immediate funding, then a Merchant cash advance can be of immense help. With the assistance of this, you will have enough capital at your disposal to make payments, buy important materials, etc.
For businessmen who make almost all their transactions through their credit card, a merchant advance is the best option because it wholly operates on your credit card sales. Conversely, having a low credit profile will not really make you eligible for a bank loan and these are the times when a merchant cash advance comes to your rescue. Plus, who does not like to apply for a loan real quick and one that gets approved in a jiffy as well?
What are the requirements of getting a merchant cash advance?
There are pretty straightforward requirements for a merchant cash advance. Most of them want your business to have been functional for about a year and earn around $5000 per month in the form of profits. There are other options that have been broken down further like a starter merchant cash advance and a premium merchant cash advance.
With the starter pack, you can apply even if you have just come into business with a history of around three months. In this scheme, you might be allowed a funding that will be 50% of your average credit card sales on a monthly basis.
Once you have paid this off, you will be in a better position and can apply for an advance with better terms. If you have quite a steady going business, then you should opt for the premium merchant cash advance which will surely cut down your cost.
What are the documents that are needed?
Not much is asked even in the form of documents when it comes to merchant cash advance. Here is the bare minimum:
- A check from your business account with VOID written on it
- A photo ID proof from the Government
- The last three statements on your credit card
- The last three statements from the account on which you do business
From what we understand, merchant cash advance can prove to be very beneficial for your business if you know how to handle it in the right way and use it to your benefit. Choosing the right lender is a cumbersome job and one can go wrong at times. However, some good research and exercising one’s judgement will surely let one make an informed decision.
Usually, the sector which has unsteady flow of cash like restaurants, shops, bars, etc, finds it a bit difficult to get a merchant cash advance. But, if you have a steady flow of cash and good sales, then getting your business capital merchant cash advance approved should only be a matter of few hours for you.